Now's The Time For An Internet Sales Tax

For years the internet has enjoyed its status as a relative haven from taxation, much to the chagrin of sales-tax reliant states. But with the fiscal situation growing more and more dire across all levels of government, and internet commerce continuing to eat into traditional forms of business, the lack of internet taxation sticks out like a sore thumb.

Indeed, the National Taxpayers Union, a libertarian anti-tax group says big tax hikes are definitely on the way.

Congressional sources say that introduction of federal legislation to implement the “Streamlined Sales Tax Project” (SSTP) could happen as early as this week. This comes in response to ongoing deliberation surrounding the issue of tax policy toward the Internet and the SSTP, a campaign that would allow states to collect sales taxes on transactions made by residents beyond their borders. States need Congress’s blessing for SSTP because of previous court rulings that governments cannot force firms within their jurisdiction to collect taxes on sales made to out-of-state customers.

“It is unfathomable that lawmakers, in good conscience, would place yet another tax burden on American families given our current economic climate,” said NTU Director of Government Affairs Andrew Moylan. “Passage of SSTP legislation would shovel more money into the coffers of states that don’t deserve it, while resulting in even more economic pain for hard-working taxpayers who have suffered enough.”

While the legal issues are certainly tricky -- particularly as it pertains to inter-state transactions -- the NTU is wrong on this one. It's time to start bringing the internet into tax parity with traditional forms of commerce.

First of all, the government needs the money. Yes, politicians could cut spending instead (and that may be preferable) but as long as citizens continue to support pro-spending measures, they need to be paid for.

Second, a big argument in favor of not taxing the internet is that such taxation would slow down innovation online, something we've been (smartly) eager to nurture over the years. But at some point that argument starts to lose its resonance as the internet grows more mature (if anything, perhaps it's physical commerce that really needs the help with innovation these days, given how miserable going to a store can be). What's more, to the extent that internet commerce innovates based on the protection of being tax-free, it may not be particularly desirable.

What's more -- and it's somewhat surprising that this doesn't get more play -- it's regressive to tax physical commerce and not tax electronic commerce, the latter of which is more popular with the affluent. There's no particularly compelling reason to offer a tax-haven to those who are more likely to be shopping online.

So yes, it's coming as the NTU says, due to economic reasons. And it's a good thing.